The monthly Copper MMI® registered a value of 67 in August, a decrease of 8.2% from 73 in July and an all-time low.
Copper prices hit another fresh low last month. Three-month LME prices are near $5,000 per metric ton, a level last seen in 2009. For many months now, producing costs relative to prices have been under close scrutiny in metals like aluminum and nickel. Now it’s copper’s turn.
Prices Below Production Costs
Many analysts are arguing that copper prices have fallen to the point where cost of production is exceeding the spot price, and many miners are going to look at cutting production and future spending. Does that mean that higher-cost producers will start closing capacity, triggering a supply response and therefore end this copper bear market?
First, cost-curves are not constant targets. They fluctuate depending on a bunch of factors such us input costs, exchange rates, etc. Copper prices are not the only thing falling. The entire commodity market is sinking, with falling energy prices continuously lowering input costs. Moreover, a stronger US dollar is lowering the costs in local currencies like the Chilean peso.
Second, even when produces are underwater, they tend to hang out as long as they can. Closing mines is usually a later response to financial and social pain.
What This Means for Copper Buyers
In conclusion, it’s good to understand where production costs are relative to prices but they are not useful when it comes to guessing a price bottom. Prices can remain below production costs for long periods of time, as we’ve seen in aluminum and nickel before.
The market probably won’t change that much until we see a resurgence in demand. Although we could see some short-term rebound in prices, the long-term picture doesn’t look good yet. On January 2014 we were bearish on copper, today we still are.
A 8.9% drop on the LME left the copper 3-month price at $5,220 per metric ton. On the LME, the cash price of primary copper closed the month at $5,218 per metric ton after dropping 8.8%. Following a 8.8% decline, the Chinese copper cash price reached $6,406 per metric ton. At $6,261 per metric ton, Chinese copper wire was down 8.6% for the month. The price of US copper producer grade 110 fell 7.2% to $3.11 per pound. A 6.8% decline for the cash price of primary Japanese copper left it at JPY 685,000 ($5,522) per metric ton. The price of US copper producer grade 102 declined 6.8% over the month to $3.30 per pound. After falling 4.3%, Korean copper strip finished the month at $7.58 per kilogram.
Last month was consistent for Chinese bright copper scrap, which did not move from $5,372 per metric ton.
The Copper MMI® collects and weights 12 global copper metal price points to provide a unique view into copper price trends over a 30-day period. For more information on the Copper MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.